Bermuda warned against tightening tax status of reinsurers

Bermuda’s favorable tax status for the reinsurance sector will be “reduced at the margin” and the “long-term implications remain to be seen”, according to the rating agency Fitch, following the implementation of the recent multilateral agreement of the OECD aiming to establish an overall minimum 15% tax rate.

The overall benefits of maintaining a home and operating in the Bermuda market will likely continue, but the net profitability gap between Bermuda-incorporated and non-Bermuda-incorporated companies is expected to narrow over time, it said. -he declares.

Fitch said it does not plan to take short-term rating action on its universe of Bermuda (re)insurers following the deal, although the long-term implications remain to be seen.

We consider the effective date of the current 2023 target to be aggressive, given the large number of countries that need to pass legislation.

“Bermuda continues to benefit from an established position in the global (re)insurance market, with demonstrated underwriting expertise, a strong and efficient regulatory regime, Solvency II equivalence and reciprocal jurisdiction status with the United States. -United.”

Bermuda is a member of the OECD Inclusive Framework and joined the OECD statement in July 2021 as it seeks to actively participate in the development of the final details of the BEPS plan.

The rating agency said Bermuda was able to withstand the Tax Cuts and Jobs Act of 2017 (TCJA) which lowered the US corporate tax rate to 21% from 35% and established the basis for erosion and anti-abuse tax (BEAT).

“The TCJA has reduced the long-standing tax advantage for companies incorporated in Bermuda over the United States to a greater extent than expected with the adoption of a worldwide minimum tax rate of 15%.

The 15% minimum tax rate will reduce the gap between the effective tax rate of non-Bermudian (re)insurers and Bermudian (re)insurers, although it will not be entirely eliminated as most jurisdictions will have tax rates above the minimum.”

He further stated: “Bermuda-based (re)insurers have benefited from a low effective tax rate due to the absence of a Bermuda corporate income tax; however, Bermuda corporations pay taxes to other jurisdictions given the international and diversified nature of their operations.They also pay US excise tax on US premium payments to offshore affiliates.

Businesses in Bermuda have responded to the passage of the TCJA with various strategic changes in the way they conduct offshore operations to mitigate the overall negative impact of the tax change.”

Fitch added that Bermuda-based business start-up and development training continued, particularly in response to increased underwriting opportunities in a hardening market environment. Additionally, many Bermuda entities have filed 953(d) elections to be taxed as if they were a US corporation, in part because it eliminates the requirement to pay the BEAT.

“(Re)insurers in Bermuda should have time to make the necessary adjustments before the global 15% minimum tax is finally implemented, which should act as a catalyst for price increases to help offset the additional costs. .

However, we consider the effective date of the current 2023 target to be aggressive, given the large number of countries that need to pass legislation.”

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